Commercial Real Estate Hotspots in the West
The western region of the United States offers fiscal opportunities in its dominating economic sectors, including technology, agriculture, oil/gas, construction, manufacturing, transportation, and many more. Many states along the western United States attract residents, but the top three states for in-migration in 2022 have been Nevada, California, and Colorado. Commercial real estate hot spots in the West include Phoenix, Denver, Las Vegas, Seattle, and Los Angeles.
Phoenix
Home to over 4.5 million residents, the Phoenix metro has seen tremendous population growth in recent years. Its multifamily market has traded $17.2 billion in apartments in the past 12 months, a record high for the metro. Additionally, Phoenix’s industrial sector received 18.6 million deliveries this year, which can be attributed to the accessibility of the metro, which can reach 35 million consumers in a single day’s truck ride from Phoenix. Growing industries such as e-commerce, logistics, and constriction have increased demand for industrial space. On top of that, the high in-migration rates account for Phoenix’s retail sector being in a far better position than in years past. The influx of residents continues to drive demand for home and necessity goods.
Phoenix has seen $32.4B in sales across all commercial property types in the past 12 months. – CoStar
Denver
As a result of robust employment growth and the rise of e-commerce, Denver has seen a massive expansion in the industrial and retail sectors. Increased consumer spending habits, paired with the national logistics boom has put Denver on track to have its highest numbers to date. In the industrial sector, Denver is expected to add another 10 million square feet of property this year. This additional high-end industrial inventory is helping drive investment prices higher and tighten cap rates. In 2020, Denver saw 850,000 square feet of retail space being vacated as a result of the pandemic; however, thus far in 2022, Denver’s net absorption has recorded 930,000 square feet, sending the metro into a quick recovery. Thankfully, foot traffic has returned to Denver’s urban areas in the past 12 months, including Downtown Denver and Cherry Creek, improving sales in brick-and-mortar locations exponentially.
Denver is easier and less expensive to build, making it a hot spot for industrial buildings. Investors are willing to pay top dollar for newly delivered industrial products to capitalize on current market conditions. – CoStar
Las Vegas
As the entertainment capital of the United States, Las Vegas attracts millions of tourists annually. Approximately $4.0B worth of retail assets has traded in the past 12 months, which can be attributed to the in-migration rates increasing and economic levels returning to pre-pandemic numbers. Las Vegas directly reflects the United States’ economy, as it is relies heavily on disposable income, mirroring the economic climate. Las Vegas can thank the flock of California residents that have made Nevada their new home, fueling the tremendous demand for housing. In the past five years, Clark’s County, which includes Las Vegas, has grown by approximately 7.2 percent adding 160,000 residents. Multifamily investors have rushed to Las Vegas to meet the demand, which has led to $5.6 billion in multifamily property trading in the past 12 months. Rents in the area have sky-rocketed, consuming 27 percent of the median household income.
Rents in Las Vegas are up 30 percent from pre-pandemic levels. – CoStar
Seattle
The Seattle metro’s booming industrial sector is ranked in the top 20 by inventory and top 10 by asset value. Its prominent location as part of The Northwest Seaport Alliance brings billions in trading annually. The port supports over 60,000 jobs in the state, contributing to $12 billion in economic activity, according to the Alliance. The retail sector in Seattle has a low vacancy rate of 2.7 percent, with leasing activity and retail rent growth strongest in its suburban areas such as Edmonds and Mill Creek. As a result of in-person shopping centers being on the rise post-pandemic, sales have increased at the register throughout Seattle, contributing to high retail investment sales volumes. In the past 12 months, Seattle saw $2.0B in retail investments, compared to the five-year average of $1.5B. Additionally, Seattle’s multifamily market, which holds King, Pierce, and Snohormish County, is among the largest multifamily markets in North America, holding 367,000 market-rate apartment units and about 24,000 units in the pipeline.
Seattle’s industrial sector is in the nation’s top 10 by asset value – CoStar
Los Angeles
Most of Los Angeles’s retail economy is driven by fitness centers and grocery stores, taking up large spaces in shopping centers. Additionally, investors have been re-working vacant big-box sites with easy freeway accessibility into industrial sites. The office space sector is heavily reliant on the area’s booming tech epicenter, Silicon Beach, where office spaces are a highly desired asset class. Los Angeles’s industrial market is the center of the two billion square foot Southern California industrial market, the largest in the country. With warehouse space being of high interest due to the area’s elevated port traffic at L.A. and Long Beach, the industrial warehouse sector is one of the country’s top performing property types, contributing to nearly one third of all of the United States’ imports. Additionally, Los Angeles has seen tremendous improvement in its multifamily sector, with a vacancy rate of 3.5 percent and 27,000 apartment units in the pipeline. Rent growth in Los Angeles has decreased since 2021 and is now at 5.8 percent. The average asking rent is Los Angeles is $2,190.
“In Q2 2022, news surfaced that Amazon took over 200,000 square feet at the Water Garden Complex in Santa Monica. This lease represents the largest lease year-to-date. Amazon anticipates hiring an additional 1,000 corporate and tech roles at the location. The space will open in mid-2023.” -CoStar
Conclusion
The western region of the United States is home to a booming tech industry, a recovering retail market, and in-demand locations for multifamily. Increased population growth and in-migration rates have helped the Western United States recover from the pandemic, faster than areas along the coast, creating a thriving investment environment.
